Sample Problems for Exam 1 Topic Review
Page
2
of
9
Pages
i
NOM
= 12%
m = 4
i
PER
= 3%
Effective semi-annual rate
=
(1.03)
2
- 1.0
=
6.09%
Find the PV as:
N = 10, I/YR = 6.09, PMT = 450, Solve for PV = $3,297.96
21.
Assume that you opened a savings account today and immediately put $5,000 into it.
You plan to contribute another $10,000 one year from now, $20,000 two years from
now, and $20,000 three years from now.
The savings account pays an 8 percent
annual interest rate.
If you make no other deposits or withdrawals, determine how
much you will have in the account 10 years from today.
A.
$111,743.38
*
B.
$102,079.76
C.
$104,284.92
D.
$109,148.18
E.
$106,823.64
The easiest way to find the solution to this problem is to find the PV of all of the
contributions today, and then find the FV of that PV 10 years from now.
Step 1:
Calculate the PV of all the deposits today:
CF
0
=
5000
CF
1
= 10000
CF
2
= 20000
CF
3
= 20000
I = 8
Solve for NPV = $47,282.68
Step 2:
Calculate the FV 10 years from now of the PV of the deposits:
N = 10, I = 8, PV = -47,282.68, Solve for FV = $102,079.76
32.
Assume a $150, 7-year annuity, where the first payment will take place at Year 37 and
the last payment will take place at Year 43.
If the appropriate interest rate to use is 10
percent, determine the value of this annuity evaluated at Year 50.
A.
$2,829.55
B.
$2,660.41
C.
$2,716.79
*
D.
$2,773.17
E.
$2,604.03
Treating as an Ordinary Annuity - Set Calculator to END of Period
: